What is the income status of a monetary settlement from an MVA?

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What is the income status of a monetary settlement from an MVA?

After receiving a settlement, is that legally counted as ‘income,’ ‘earnings’ or assets, or is it considered reimbursement for any future medical bills and the pain and suffering from the MVA?

I assume it has to be declared on income taxes as any kind of income, so does it then affect the status of someone without any job or income and receiving any type of state assistance? Would that person then lose any kind of assistance?

Can this money be garnished in any way for debts, or is it legally protected?

Are the answers different according to each state’s laws?

Asked on June 19, 2016 under Accident Law, Arkansas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

The answer depends on what the settlement is for--and it could be for several different things at once. Generally, the following are not taxable:
* Reimbursement of medical expenses not paid by your insurance or Medicare/caid
* Payment for property damage (e.g. any car repar costs or deductible not paid by your insuer)
* Compensation for "pain and suffering"
* Reimbursement of direct, out-of-pocket costs (e.g. towing your damaged car)
However, the following ARE taxable:
* Compensation for lost income or wages (since income or wages is always taxable)
* Punitive damages, in the rare event they are awarded (since this is is not compensation or reimbursement for any expense or loss)
The settlement agreement should indicate what it is for, and it's to your advantage that most or even all of the costs be attributed to the non-taxable categories.


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